Claimant who only beat part 36 offer because of interest “not entitled to enhanced costs”

A claimant who only beat his part 36 offer at trial because of the interest on the damages awarded through to judgment is not entitled to enhanced costs, the High Court has ruled.

HHJ Pelling, sitting as a High Court judge, said that a part 36 offer was deemed to include only the interest to the date when the relevant period for accepting the offer expired.

The substantive ruling in Purrunsing v A’Court & Co (a firm) & Anor[2016] EWHC 1528 (Ch) was a landmark decision in which the conveyancers on both sides of a property fraud were found jointly liable for the £470,000 loss suffered by the buyer.

In May 2015, the claimant made a part 36 offer of £516,000 including interest. Following the trial, he recovered £470,000 together with interest of 2.5% above base rate, which to the date of the order (14 April 2016) was £48,983.01. This totalled £518,983.01 and the claimant submitted that he had beaten his offer and was entitled to recover an enhanced costs order under part 36 for the period from the date 21 days after the part 36 offer was made.

HHJ Pelling disagreed. He ruled: “By CPR rule 36.5(4), a part 36 offer to pay money is deemed to include all interest down to the date when the relevant period for acceptance of the offer expires. In order to work out whether a judgment is more advantageous than such an offer, it is necessary to ensure that the offer or the judgment sum is adjusted by eliminating from the comparison the effect of interest that accrues after the date when the relevant offer could have been accepted.

“In my judgment this is the effect of the words ‘better in money terms’ in CPR rule 36.17(2). If that is not done, then comparing the offer with the judgment is not comparing like with like and thus it is not possible to assess whether the judgment is ‘more advantageous’ in money terms than the offer.”

The judge said that as interest compensates for the loss of use of money over a given period, “in theory at least” the interest that accrued for the period between the last date when the offer could have been accepted and the date of judgment was “neutral”.

He continued: “If it was otherwise, then whether an offer from a claiming party should be accepted by a defending party would depend not on an analysis of liability in respect of the claim but what in many cases will be entirely unpredictable, namely the date when a trial takes place and what is perhaps even more unpredictable, when judgment will be handed down.”

Given that an enhanced costs order was “draconian in effect”, HHJ Pelling said it was “in the highest degree unlikely” that it was intended to depend on an “entirely random event such as when judgment would be given following a trial”.

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